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Opening Doors to the World: Canada's International Market Access Priorities 2000

4. Opening Doors to the Americas

The NAFTA

The North American Free Trade Agreement entered into force for Canada, the United States and Mexico on January 1, 1994. Designed to foster increased trade and investment among the partners, the NAFTA contains an ambitious schedule for tariff elimination and reduction of non-tariff barriers, as well as comprehensive provisions on the conduct of business in the free trade area. These include disciplines on the regulation of investment, services, intellectual property, competition and the temporary entry of business persons.

The NAFTA did not affect the phase-out of tariffs under the Canada-U.S. Free Trade Agreement (FTA), which was completed on January 1, 1998. As of that date, virtually all tariffs on Canada-U.S. trade in originating goods were eliminated. Some tariffs remain in place for certain products in Canada's supply-managed sectors (e.g. dairy and poultry), as well as sugar, dairy, peanuts and cotton in the United States. The NAFTA provides for virtually all tariffs to be eliminated on trade in originating goods between Canada and Mexico by January 1, 2003. The second round of "accelerated" tariff reductions, covering some US$1 billion in NAFTA trade, was implemented in August 1998. Mexican tariffs were eliminated on certain Canadian yarns, textile fabrics, chemical products, caulking compounds, certain watches and other specified products.

Total trade and investment between Canada, Mexico and the United States has increased substantially since the NAFTA was implemented. Canada's total merchandise trade with the United States and Mexico was approximately $570 billion in 1999. Two-way merchandise trade between Canada and Mexico grew by 21.6 percent, reaching $11 billion in 1999. Our merchandise trade with the United States is up 11.1 percent over the same period, reaching $559 billion in 1999. In terms of Canada's total merchandise exports, 86 percent go to our NAFTA partners.

Under the NAFTA, Canadian producers are better able to realize their full potential by operating in a larger, more integrated and efficient North American economy. Canadian manufacturers are able to use the least-expensive, highest-quality intermediate goods from across North America in the production of final goods for export. Consumers benefit from this heightened competition and integrated marketplace with better prices, greater choice of products and higher-quality goods and services.

Improved access to NAFTA markets, and the existence of clear rules on trade and investment, have increased Canada's attractiveness to foreign and domestic investors. Total FDI into Canada reached $217 billion in 1998, 68 percent of which comes from our NAFTA partners. FDI into Canada from the United States increased for a fifth straight year to $147 billion in 1998, while investment from Mexico reached $464 million in 1998, over three times that of 1993. Canadian direct investment in the NAFTA countries has also increased, reaching $126 billion into the United States in 1998, almost twice that of 1993, and $2.2 billion into Mexico, four times the 1993 level.

Institutionally, the implementation of the NAFTA is directed by the NAFTA Commission, composed of the trade ministers from each country. The Commission oversees the work of more than 30 trilateral committees, working groups and other subsidiary bodies established to further facilitate trade and investment and ensure effective implementation and administration of the NAFTA's rules. The NAFTA working groups and committees also provide a transparent mechanism for discussion of issues and possible avoidance of disputes through early dialogue on contentious points.

At the most recent Commission meeting in April 1999, ministers completed an operational review to examine the structure, mandates and future priorities of the NAFTA work program, which was launched in 1998. The review succeeded in reinvigorating the ongoing institutional implementation of the NAFTA and embedded a management structure to better oversee cooperative efforts under the NAFTA regime. The Commission meeting also provided an opportunity to evaluate the impact of the NAFTA over its first five years and provide direction on the way forward.

Ministers from the three NAFTA Parties also agreed at the Commission meeting to engage in outreach and promotional activities in an effort to better communicate the benefits of the NAFTA. As part of this effort, DFAIT launched a revamped NAFTA website (http://www.dfait-maeci.gc.ca/nafta-alena/) and published a document that reviews the impact of the NAFTA on Canada, entitled The NAFTA at Five Years: A Partnership at Work.

Settling Disputes under NAFTA

The vast majority of our trade and investment with the United States and Mexico now takes place within the context of the clear and well-established rules of the NAFTA. Nonetheless, disputes are bound to emerge in such a large trading area. In such cases, the NAFTA provides a vehicle for the governments concerned to resolve their differences through NAFTA committees and working groups, or through other consultations. If no mutually acceptable solution can be found, the NAFTA provides for expeditious and effective dispute settlement procedures. Where WTO rights and obligations are at issue, NAFTA Parties also maintain the option of recourse to WTO dispute settlement procedures as an alternative to the NAFTA procedures.

Chapter 20 includes provisions relating to the avoidance or settlement of disputes regarding the interpretation or application of the NAFTA, except for matters covered under Chapter 19. There are also separate dispute settlement provisions for matters under Chapters 11 (Investment) and 14 (Financial Services). Chapter 19 of the NAFTA provides a unique system of binational panel review as an alternative to judicial review for domestic decisions regarding anti-dumping and countervailing duty matters.

From November 1998 to November 1999, no new requests were made under Chapter 19 for review of decisions of Canadian agencies in anti-dumping or countervailing duty cases. Two requests were made by Canadian producers for review of decisions of U.S. agencies (flat corrosion-resistant carbon steel and cut-to-length carbon-steel plate). Six other cases involving either Canadian goods or agencies remain active: four involving a Canadian agency's determination (hot-rolled carbon steel plate from Mexico; and baby food, cold-reduced flat-rolled carbon steel sheet, and copper pipe fittings from the United States); and two involving a U.S. agency's decision (flat corrosion-resistant carbon steel and brass sheet and strip). Two anti-dumping cases were also completed during the period, one involving the review of a Mexican agency's determination on rolled-steel plate from Canada, requested in 1996, and the other involving the review of a U.S. agency's determination on flat corrosion-resistant carbon steel from Canada, requested in 1997.

There are also several active Chapter 20 disputes between Mexico and the United States in which Canada is a third party. These disputes involve cross-border trucking and bus services and access for Mexican sugar to the U.S. market. The panel for Mexico's dispute with the United States on cross-border trucking and bus services began its work in early 2000.

In March 1999, under the investor-state dispute settlement provisions of Chapter 11, arbitration was started against Canada by Pope & Talbot Inc. (U.S.) concerning the implementation of the Canada-U.S. Softwood Lumber Agreement. Arbitration continued in the dispute brought by S.D. Myers Inc. (U.S.) in October 1998 concerning Canada's imposition of a 1995 prohibition on the export of PCB wastes to the United States. Sun Belt Water Inc. (U.S.) has not started arbitration against Canada, but has been in a position to do so since March 1999. As part of the ongoing review by the Parties of the operation of NAFTA, Canada is continuing to work with the United States and Mexico to seek clarification of the concept of expropriation contained in Chapter 11 and to enhance the transparency of the investor-state dispute settlement provisions.

Looking Forward

The NAFTA is not a static agreement. It has created a living framework for managing current and future priorities in the North American marketplace. Looking to the future of the agreement, some of Canada's priorities are to:

• ensure the continued smooth implementation of the NAFTA;

• clarify the NAFTA Parties' understanding of the provisions of the investment chapter of the NAFTA and increase procedural transparency (Chapter 11 http://www.dfait-maeci.gc.ca/nafta-alena/chap11-en.asp);

• explore areas that were either not fully addressed by the agreement, or where further progress might be possible;

• evaluate the impact of rapid technological change on North American markets and have new ways of doing business (such as e-commerce) reflected in the rules of the NAFTA;

• seek greater openness and transparency in NAFTA institutions; and

• explore opportunities for greater cooperation in the development and interaction of our trade, labour and environment policies.

United States

Overview

Canada and the United States are each other's largest trading partners, moving about $1.5 billion worth of goods and services across the border each day. In 1999, Canada exported $310 billion in goods to the United States and imported $249 billion in return. Services exports totalled $29.6 billion during the same period, with corresponding imports at $34.3 billion. Canada's merchandise exports to the United States alone support over 2 million Canadian jobs and generate 32.6 percent of Canada's GDP. Fully 85.9 percent of Canadian merchandise exports are destined for the United States. Since the implementation of the FTA in 1989, two-way trade has more than doubled. Between 1992 and 1999, two-way trade in goods increased by approximately 13 percent per year. This contrasts with an average annual increase of approximately 6.4 percent over the same period for Canada's trade in goods with the rest of the world.

The FTA, and subsequently the NAFTA, have had other positive spin-offs. For example, U.S. direct investment in Canada has increased from approximately $85 billion in 1991 to $147 billion in 1998, while Canadian direct investment in the United States has grown from $63 billion to $126 billion in the same period.

Canada's trade and investment relationship with the United States is quantitatively and qualitatively different from that with any other country. Excellent opportunities exist for Canadian goods and services exporters in virtually every sector. To exploit these opportunities, DFAIT's activities concentrate on introducing small- and medium-sized enterprises (SMEs) to the market, with particular focus on assisting women, young entrepreneurs and aboriginal firms to begin exporting to the United States. The New Exporters to Border States (NEBS) program has been highly successful in this regard, having helped more than 12,000 companies make their first foray into the U.S. market. The Canadian government also encourages Canadian exporters that have succeeded in more than one region of the United States to "graduate" to other international markets. For further information, please visit our website at http://www.dfait-maeci.gc.ca/can-am/.

The Canadian government also aims to attract and expand investment from the United States and to encourage strategic alliances with U.S. companies. The Government's plan is to promote investment through the use of a more integrated, sector-focussed approach that builds on the cooperation between DFAIT and its Team Canada partners.

In promoting Canada's market access and business-development interests in the United States, it is important to consider each individual region of the United States in its own right. Most U.S. regions and many individual states have economies that are larger than many countries. There are also different cultural and economic influences at play in different areas of the United States. Over the past year, several federal cabinet ministers and deputy ministers have made visits to important U.S. regions to help forge relationships with government and business leaders. These initiatives are necessary to advance Canadian priorities and highlight the attractiveness of Canada as an investment destination.

Market Access Results in 1999

• The Consultative Committee on Agriculture began operation in 1999 to bring concerns and differences forward for resolution before they become serious bilateral irritants. The committee also involves provinces and states on a more systematic basis.

• The movement of feeder cattle into Canada was facilitated by expanding animal health approvals for cattle from states that meet certain animal health criteria.

• Regulations have been implemented that require a Canadian export permit for access to its tariff rate quota for Canada on sugar-containing products.

• Michigan amended its Single Business Tax (SBT) legislation, significantly reducing its impact on access for Canadian companies. The SBT, currently 2.2 percent, will be phased out at 0.1 percent per year over a 23-year period.

• An agreement-in-principle was reached on the main elements required to resolve problems resulting from changes to the U.S. International Trade in Arms Regulations (ITARs).

• As a result of reviews of 15 long-standing anti-dumping and countervailing duty orders, seven were revoked.

• Anti-dumping and countervailing duty cases against live cattle concluded in the fall of 1999 with neither resulting in permanent additional duties on Canadian cattle. In the anti-dumping case, the International Trade Commission (ITC) found no injury or threat of injury in its final determination; and in the countervailing duty case, the Department of Commerce found that subsidies were below de minimis levels and so were not countervailable.

• An anti-dumping investigation of imports of stainless steel wire did not result in the application of additional duties to imports from Canada.

• Two safeguard investigations involving imports of carbon-steel wire rod and carbon-steel line pipe concluded that imports from Canada were not injuring U.S. industry.

Canada's Market Access Priorities for 2000

• promote and further defend access to the U.S. market by exercising rights under existing trade agreements;

• press for full U.S. implementation of the WTO and the GATT panel decisions on Section 301, Foreign Sales Corporation, and beer and seek a panel decision on Section 337;

• continue Canadian advocacy efforts to inform U.S. opinion makers of the adverse impact of legislation affecting the free and easy movement of people and goods across the border, such as Section 110;

• reinforce such advocacy by developing and supporting strategic alliances with U.S. customers and their representatives affected by such measures;

• work closely with the United States to enhance cooperation and streamline border processing through initiatives such as the Shared Border Accord and Preclearance, including an expansion of the voluntary compliance outreach program;

• continue to monitor closely and respond to key measures that may distort trade and investment decisions in the North American market;

• continue to press against U.S. Customs' unilateral reclassification action which prejudices Canadian products such as drilled studs, notched studs and rougher-headed lumber;

• continue to oppose the extraterritorial application of U.S. laws;

• continue to advance Canadian market access objectives in other areas, such as services and government procurement; and promote Canada as an investment destination; and

• pursue amendments to the Marine Mammal Protection Act in order to harmonize it with international principles, such as those contained in the Convention on International Trade in Endangered Species (CITES).

The remainder of this chapter provides additional detail on key U.S. market access issues for Canada over the next year. It should not be regarded as an exhaustive inventory of obstacles faced by Canadian firms doing business in the United States, nor as an exclusive list of issues that the Canadian government will pursue.

Exercising Canada's Rights Under Trade Agreements

Sugar and Sugar-containing Products

In 1997, Canada and the United States exchanged Letters of Understanding whereby Canada received country-specific allocations allowing certain quantities of Canadian sugar-containing products (SCPs) and refined sugar to be imported duty-free each year into the United States. Canada is also able to compete with other countries for the non-allocated portions of these tariff rate quotas (TRQs). To ensure predictable access to the SCP TRQ for Canadian exporters, as part of the joint Canada-U.S. Action Plan on Agricultural Trade, as of February 4, 2000, the United States requires an export permit, issued by the Canadian government as a condition of entry when the exporter or importer is claiming preferential tariff treatment. Canada will continue to ensure that our access to the U.S. sugar market is not eroded and that the TRQ for SCPs is administered effectively and fairly.

Softwood Lumber Agreement

The United States has unilaterally reclassified three products (drilled studs, rougher-headed lumber and notched studs) to bring them under the Canada-U.S. Softwood Lumber Agreement. Canada is challenging these reclassifications and has requested arbitration. The Softwood Lumber Agreement will expire March 31, 2001, and the federal government has begun consulting with stakeholders to assess the next steps.
Canada and the United States resolved a dispute over changes to stumpage fees in British Columbia, with an exchange of letters on August 26, 1999.

More detailed information and the latest developments regarding the Softwood Lumber Agreement can be found at http://www.dfait-maeci.gc.ca/eicb/softwood/sla-en.asp

Sanctions

Canada continues to support the use of economic, and preferably multilateral, sanctions as an appropriate instrument of foreign policy for promoting acceptable standards of behaviour on the part of offending regimes. At the same time, the Canadian government believes that the use of those sanctions must conform with established international practice and remains concerned over the continued application of unilateral economic sanctions with extraterritorial effect by the United States. Such measures harm the legitimate right of Canadians to trade and invest freely, provided that they do so in accordance with Canadian law, the law of the country in which they are operating and international trade practice. At the federal level, the most notable examples are the Cuban Liberty and Democratic Solidarity Act (LIBERTAD) (also known as the Helms-Burton Act) of 1996 and the Iran and Libya Sanctions Act (ILSA) of 1996. A number of states and municipalities have also conditioned business relations with them on the embargo of certain foreign governments. But private sector opposition to unilateral economic sanctions remains strong. The Massachusetts sanctions law against Burma has been held unconstitutional by a Federal District Court; and there is the possibility that the Supreme Court, which has agreed to hear this case on appeal, may rule all such sub-federal sanctions unconstitutional.

Alcoholic Beverages

A 1992 GATT panel on U.S. federal and state measures relating to imported beer, wine and cider found that certain provisions of the federal excise tax and many state measures discriminated against imports. The panel recommended that the U.S. federal and state governments bring their inconsistent measures into conformity with their obligations.

According to Canadian industry and government research, few of those measures have been brought into conformity; in addition, new trade-distorting measures affecting Canadian exports of alcoholic beverages to the United States have been implemented at the state level since the GATT panel reported. Canada is therefore pursuing this issue further with the United States, to press for implementation of the GATT panel. This requires removal of the discriminatory elements of the federal excise tax on beer, wine and cider; it also requires reasonable measures by the Administration to ensure that the states observe the U.S. trade agreement obligations by removing discrimination from measures such as excise taxes and distribution practices.

Resisting U.S. Measures that Constrain Access

Marine Mammal Protection Act

The Marine Mammal Protection Act (MMPA) prohibits trade in marine mammal products regardless of species' conservation status, and therefore appears to be inconsistent with U.S. international trade obligations. For example, under the CITES, neither ringed nor harp seals are considered threatened or endangered in any way, and therefore no monitoring or trade restrictions are justified on the movement of products from either species. However, under the MMPA, both species are restricted, so that no imported product made from animals of these species is allowed into the United States. The MMPA would also appear to be in violation of the national treatment provisions of both the WTO and the NAFTA by allowing domestic production in Alaska and commercial sales in the United States of products that it otherwise bans. Canada has communicated its concerns to the U.S. Administration and intends to take advantage of the MMPA re-authorization process in the Congress to reiterate its position. This process is expected to begin in March 2000.

Durum Wheat

Canadian durum wheat exports to the United States reached record levels in the 1998-1999 crop year -- higher than in 1993-1994 when unilateral restrictions were imposed. Wheat producers in the United States and some members of Congress voiced concerns about imports from Canada and alleged unfair practices by the Canadian Wheat Board. These allegations have been found to be without substance, despite several investigations by U.S. agencies; indeed, Canadian wheat is purchased in the United States by customers who value its quality and consistency. These exports are an important part of a mutually beneficial, highly integrated North American agriculture and agri-food market. For example, Canadian durum wheat is imported by U.S. pasta producers who in turn export pasta to Canada. For a decade, the value of Canadian durum wheat exports to the United States has been comparable to U.S. pasta exports to Canada.

The United States was the destination for 12.37 percent of Canadian exports of all wheat by value in 1999. Canada will not restrict grain exports. Both sides are committed to a regular exchange of information on bilateral and international grains trade to help dispel misperceptions about the impact of Canadian exports on the U.S. market, and to deal with other issues such as trade practices in third-country markets. In addition, Canada continues to encourage increased consultation and cooperation among industry groups on both sides of the border.

Country of Origin Labelling Initiatives

Congress has proposed introducing new country of origin labelling (COL) requirements for beef, lamb and pork, with potential consequences for Canadian exports. Canada and the United States agree that COL requirements on agricultural and food products should be consistent with obligations under the NAFTA and the WTO. Canada will continue to oppose legislative amendments that would require mandatory COL requirements for meat.

A study by the U.S. Department of Agriculture on COL of imported meat, released January 13, 2000, states that COL is certain to impose costs and is uncertain to produce benefits.

Hold and Test

Shipments of Canadian agri-food products are occasionally subject to long delays before they can be released for sale in the United States due to the U.S. Food and Drug Administration's hold and test policy. The U.S. FDA regularly holds agri-food shipments imported into the United States, pending the results of laboratory testing for compliance with U.S. food laws and regulations. Delays resulting from the FDA's testing procedures are trade-disruptive and costly for Canadian exporters. Canadian officials met with U.S. counterparts on January 31, 2000 to reach a solution. As a result of that meeting, Canadian and U.S. officials agreed to undertake a cooperative program to further enhance food safety in a manner which recognizes the two countries' shared food safety policies and capacities, as well as their increasingly integrated market for agriculture and food.

Exports of Hemp Products

Production of industrial hemp is not permitted in the United States; however, imports of hemp products have been allowed. The U.S. market for hemp products is estimated at $50 million, which has been primarily supplied by the EU. It is estimated that 80 percent to 90 percent of Canadian processed hemp is exported to the United States.

After some initial border problems with Canadian hemp product in 1999, the United States issued guidelines in December 1999 that would have prevented future border problems. The new guidelines required all shipments of hemp seed to be sterilized and all hemp products to contain less than 0.3 percent THC. This was not considered a problem for Canadian exporters, as Canadian regulations require domestically produced hemp to meet the same requirements. On January 5, 2000, the United States rescinded these guidelines and issued new instructions that require the seizure of hemp or hemp products containing any amount of THC. This policy was enacted without warning or consultation with the Canadian government. Canada is continuing to monitor the situation and is working with the companies affected to resolve the issue.

International Trade in Arms Regulations

Since World War II, there has been a secure North American perimeter and an integrated North American defence industrial base. Defence goods and technology normally have flowed licence-free between Canada and the United States in exchange for common, stringent controls under both Canadian and U.S. law over exports from North America. In the spring of 1999, the United States amended its International Trade in Arms Regulations (ITAR) regulations, effectively removing these special licence-free benefits. As a result, Canadian defence suppliers face lengthy and more complex requirements in obtaining access to U.S.-controlled goods and technologies and in selling to the U.S. market. Minister of Foreign Affairs Axworthy and Secretary of State Albright agreed on April 27, 1999 to ensure that our joint objectives will be reached in a mutually satisfactory way and that the ITARs will be implemented in such a way as to mitigate the effects on the North American defence and aerospace industry. On October 8, following a meeting of Prime Minister Chrétien and President Clinton, an agreement-in-principle was reached on the main elements required to resolve problems resulting from these changes. Canada is continuing the discussions with a view to finalizing an agreement that will restore licence-free access.

Monitoring Developments Affecting Canadian Interests

The Record of Understanding

On December 4, 1998, Canada and the United States signed a Record of Understanding (ROU) and Action Plan on bilateral agricultural trade. A Consultative Committee on Agriculture was announced April 20, 1999 to improve dialogue on agriculture issues of mutual concern and to involve provinces and states in a systematic process to address trade concerns. Its first meeting was held in Ottawa on September 24, 1999.

Other positive aspects of the ROU include: the in-transit grain rail program, which moved 6,998 rail cars of U.S. wheat, barley and oats through Canada in 1999; the harmonization of pesticide regulations; the joint publication of data concerning U.S.-Canada cattle inventory; and the expansion of the Northwest Cattle project.

Under the action plan, both sides have agreed to remove a range of measures that restrict access for livestock, equine semen, horticultural products and nursery stock. The agreement also addresses industry concerns related to veterinary drugs and pest control products. Canadian and U.S. agencies responsible for these issues have agreed on work plans to increase information exchange and the harmonization of their regulatory systems.

Agricultural Export Subsidies/Credits

Canada remains concerned about the possibility of increased use by the United States of export subsidies in third-country markets. Elimination of such subsidies is a priority for Canada in the new round of WTO agriculture negotiations. As well, Canada supports the view that agricultural export credits must be brought under effective international discipline, with a view to ending government subsidization of such credits.

Michigan Single Business Tax

On June 1, 1999, Michigan Governor Engler introduced amendments to the Single Business Act (SBT Act), including a phase-out of the SBT tax rate over a 23-year period by 0.1 percent per year (currently at 2.2 percent). The legislative package included potentially harmful amendments to the way Canadian and other foreign corporations would be taxed on a prospective basis. Amendments to the Michigan SBT Act were enacted in mid-1999, following an intense advocacy campaign by Canadian industry, provincial and federal governments. The amended SBT Act provides for a mechanism to tax foreign companies for tax years beginning on or after January 1, 2000. For Canadian firms, there will be no retroactive application of the tax unless they had permanent establishments in the United States and were obliged to pay federal taxes in the United States under the Canada-U.S. Tax Treaty. Companies that paid the tax in the past but did not have permanent establishment in the United States may be eligible for refunds.

Canadian firms must be aware of their tax liability in Michigan. For Canadian firms, guidance on the tax can be taken from four Revenue Administration Bulletins (RABs) from the Michigan Treasury: on nexus (February 1999); on retroactivity (November 1999); on the tax base (January 2000); and on the transportation sector (February/March 2000). For more information, please visit the following website: http://www.michigan.gov/treasury

Section 110

Section 110 of the 1996 U.S. Immigration Act directs the Immigration and Naturalization Service to create a system to document the entry and exit of all foreigners. If implemented, the provision would create intolerable delays at already congested Canadian border crossings. In October 1998, implementation of Section 110 was delayed to March 30, 2001, providing that it does not significantly disrupt trade, tourism or other legitimate cross-border traffic. Canada and its allies continue to seek a permanent legislative solution to this problem to avoid gridlock at the border.

Fast Track

"Fast track" is a mandate to the U.S. Administration by which Congress sets out negotiating objectives and undertakes to approve or disapprove, without amendment, trade-liberalization agreements thereby negotiated. The Administration is currently without such a mandate, and it is unlikely to be obtained during the election year 2000. In these circumstances, at some point during the new WTO agricultural and services negotiations and the FTAA negotiations, countries are likely to become reluctant to continue negotiating with the United States for fear that concessions achieved at the bargaining table could be withdrawn by Congress. It will be important for the next Administration to obtain "fast track" in 2001.

Legislative Interference

In 1999, a Vermont Senator proposed an amendment to a federal bankruptcy bill that would have annulled Hydro-Quebec's $4-billion, 30-year contract with Vermont utilities. The Canadian Ambassador, along with key U.S. allies, countered the move as a dangerous precedent of legislative interference with transnational contracts. Congressional sources have indicated that the amendment will not become law. Canada will continue to watch for any restrictions on electricity exports and on Hydro-Quebec's ability to do business in the United States.

Other Issues

Customs and Administrative Procedures

Following the signing of the Shared Border Accord in 1995 and the subsequent visit of the Prime Minister to Washington, DC in 1997, Canada and the United States have pursued several initiatives to strengthen cooperation at the border. To realize the benefits of free trade, Canada and the United States are working to facilitate trade and tourism, while protecting our respective citizens against the threats associated with illicit activities such as illegal immigration, drugs and terrorists. Under the Shared Border Accord, the two countries have established new mechanisms for managing the transboundary movement of goods and people, including reducing the number of stops for carriers moving goods-in-transit through either country; promoting the use of joint or shared border facilities; and introducing new technologies to detect drugs and to enable remote inspection of travellers. Canada and the United States remain committed to making our shared border a model of cooperation and efficiency, as illustrated by the signing of the Canada-United States Partnership (CUSP) during President Clinton's October 1999 visit to Ottawa.

Intellectual Property

Under Section 337 of the U.S. Tariff Act of 1930, imported products that are alleged to infringe upon U.S. intellectual property (IP) rights can be barred from entering the United States by the ITC. Section 337 provisions contain more direct remedies against alleged infringers than those available in U.S. domestic courts, and the administrative procedures in the ITC can be more onerous. U.S.-based alleged infringers face proceedings only in the courts, whereas importers may face proceedings both in the courts and the ITC.

In 1989, a GATT panel found that Section 337 violated GATT obligations. The Uruguay Round implementing legislation has removed some of the inconsistencies with new WTO-TRIPs obligations, but Section 337 complaints are still being brought against Canadian companies, which thereby face additional procedural burdens in defending against allegations of IP infringements. The Canadian government remains concerned and will continue to monitor closely specific cases, including potential international trade disputes on the matter, in order to determine what steps might be taken to ensure that Canadians are treated in accordance with U.S. international trade obligations. At the time this report went to print, Canada had joined WTO consultations between the EU and the United States, which may or may not eventually lead to a dispute settlement panel.

Trade Remedies

Canadian officials continue to monitor developments in the United States pertaining to trade policy to ensure that any new rules, and the implementation of existing ones, conform with U.S. international trade obligations. Canada will continue to make known its opposition to legislation such as the 1999 Steel Quota Bill, which would have capped steel imports at their pre-1998 level and made changes to U.S. trade legislation. In the regulatory field, Canada submitted comments on proposals by the U.S. Department of Commerce regarding the conduct of anti-dumping and countervailing duty investigations. Most of those submissions were made in response to proposed regulations regarding the conduct of sunset reviews of the 15 anti-dumping and countervailing duty orders in place on Canadian products. Of these orders, seven have been rescinded (steel jacks, racing plates, elemental sulphur, red raspberries, potash, sugar and syrup, live swine). Of the remaining eight orders, two have been maintained (iron construction castings, steel rails) and six are still under review (brass sheet/strip, colour picture tubes, oil country tubular goods, magnesium, steel plate, corrosion-resistant steel). Finally, Canadian officials assisted Canadian producers of steel, magnesium, brass, sulphur, cattle, live swine and wheat gluten by offering advice and making representations on specific aspects of trade remedy investigations conducted by the United States.

Trade Remedy Investigations

In 1999, anti-dumping and countervailing duty investigations were conducted on imports of three separate products from Canada: stainless steel plate (dumping), stainless-steel wire (dumping) and live cattle (dumping and countervail). Of these, only the investigation regarding stainless steel plate from Canada resulted in the application of additional duties. With respect to live cattle, a review of the anti-dumping injury finding was sought by the U.S. party in late 1999. The Canadian party requested that this review be conducted by a NAFTA panel.

In addition, two safeguard investigations involving imports of carbon-steel wire rod and carbon-steel line pipe resulted in findings that, further to the provisions of the NAFTA, imports from Canada were not injuring U.S. industry.

Over the same period, Canada initiated two anti-dumping duty investigations against products from the United States: contrast media; and refrigerators, dryers and dishwashers. Both investigations are still in progress.

Electricity

The United States is taking action at the federal and state levels to deregulate the electricity sector, with a view toward increasing competition, creating market efficiencies and lowering costs to consumers. This restructuring may create both opportunities and risks for Canadian electricity suppliers in the U.S. market. Prospects for increased trade may be influenced by new markets and market structures, innovation in services and expanding energy demand. On the other hand, as a result of earlier deregulation efforts, the United States requires that Canadian suppliers seeking access to U.S. wholesale markets offer reciprocal access to their own transmission lines. Current restructuring legislation focuses on opening access to the retail sector, possibly also on a reciprocal basis. Other provisions would exclude Canadian-origin products from part of the U.S. market by requiring U.S. suppliers to purchase non-hydroelectric U.S.-origin renewable energy. The legislation also addresses continent-wide systems reliability standards and the establishment of transmission organizations (common carriers), two issues that could impact Canadian sovereignty and jurisdiction. Separate legislative initiatives have been proposed that specifically target Canadian electricity suppliers.

Canada, in consultation with provincial government officials and the industry, will continue to consult with U.S. officials and monitor developments in the U.S. electricity sector to assess the conformity of these proposals with U.S. international trade obligations, as well as other commercial and economic implications. In addition, an active advocacy plan is being developed to promote and defend Canadian trade interests in Congress and with the Administration.

Mutual Recognition Agreement on Fish Inspection Systems

In 1999, Canadian Food Inspection Agency (CFIA) and U.S. FDA officials continued discussions on a fish inspection MRA. Such an agreement would facilitate bilateral trade in fish and fish products. Canada's objective is to complete these discussions in 2000.

Improving Access for Trade In Services

Financial Services

The abrogation of a key financial legislation (the Glass-Steagall Act) in 1999 has opened the U.S. insurance markets to Canadian banks. With respect to the cross-border provision of services, Canada wishes to see a more level playing field in the securities sector. As required under the NAFTA, Canada, Mexico and the United States revisited this issue in early 1999. It was agreed that Canada and the United States would pursue discussions on the regulation of cross-border securities trade bilaterally.

Telecommunications

In late 1999, the Federal Communications Commission (FCC) announced streamlined procedures to facilitate market entry for foreign service providers of fixed satellite services. This may provide Canadian service suppliers with a faster and more transparent licencing process; however, a licence may still be denied if there are national security, law enforcement and foreign policy or trade concerns raised by the Executive Branch.

In light of the lengthy delays that some Canadian companies have experienced in gaining access to the U.S. market, Canada will continue to monitor carefully U.S. implementation of its WTO commitments with respect to telecommunications services to ensure that Canadian service providers are subject to timely and transparent licencing procedures.

Shipping

A number of maritime laws (collectively known as the Jones Act) impose a variety of limitations on foreign participation in the U.S. domestic maritime industry. Under these laws, the carriage of cargo or passengers between points in the United States is restricted to U.S.-flagged vessels that are built, owned and crewed by U.S. citizens. Similar restrictions apply to dredging, salvage and other commercial marine activities in U.S. waters. Canada's particular concerns relate to the U.S.-build requirement, which precludes the use of Canadian-built vessels in U.S. domestic marine activities. In international shipping, there are limitations on foreign ownership of vessels eligible for documentation in the United States. In addition, several subsidies and other support measures are available to operators of U.S. vessels; for example, cargo preference laws restrict the carriage of military cargo and limit the carriage of government non-military cargo, aid cargo and certain agricultural commodities to U.S. vessels. These restrictions (coupled with defence-related prohibitions of the Byrnes/Tollefson Amendment) limit Canadian participation in U.S. shipping activities.

Canada will continue to use every appropriate opportunity to encourage the liberalization of the provisions of the Jones Act that adversely affect Canadian interests. Although there have been renewed calls for reform, the cabotage and cargo preference restrictions continue to enjoy significant support in the United States, limiting the prospect for any major change in the short term.

Temporary Entry

Section 343 of the U.S. Illegal Immigration Reform and Immigrant Responsibility Act would require any alien seeking U.S. employment as a health-care worker to present a certificate from a U.S. credential-issuing organization verifying the person's professional competency and proficiency in English. An interim rule is currently in place that affects only those health-care workers seeking admission to the U.S. on a permanent basis to perform services in the fields of nursing and occupational therapy. An indefinite waiver of inadmissibility for health-care workers seeking temporary entry remains in effect pending final implementation of the regulations. This waiver is a temporary solution, and Canada continues to press its view to the U.S. Administration and Congress that the duplicative certification requirements of Section 343, as it applies to those seeking temporary entry, would violate U.S. NAFTA obligations. Our ultimate goal is to see the U.S. Administration maintain a permanent waiver of inadmissibility for those health-care workers seeking temporary admission to the United States.

Government Procurement

Canada will continue to press the U.S. government to further open its procurement markets to Canadian suppliers. Currently, U.S. government exceptions under NAFTA and WTO procurement agreements prevent Canadian suppliers from bidding on a broad range of government contracts in sectors of key importance. Especially onerous are the set-aside programs for small and minority-owned businesses and the Buy American provisions. In addition, both long-standing and ad-hoc legislative provisions, as well as conditions attached to funding programs, impede access for Canadian suppliers. The need for progress in both assuring and improving access for Canadian suppliers at the U.S. federal, state and local levels remains a key issue for provincial governments in determining whether any offer to open Canadian provincial and local government markets could be made.

Small Business Set-asides

The Canadian government remains concerned about the extensive and unpredictable use of exceptions to the NAFTA and the WTO AGP for small business set-asides. Canadian suppliers face the ever-present possibility that government markets that they have successfully developed and supplied competitively will subsequently be closed through the application of the set-aside exception. The definition of a U.S. small business varies by industry, but is typically 500 employees in a manufacturing firm (up to 1,500 employees in certain sectors) or annual revenues of up to US$17 million for a services firm. Furthermore, U.S. federal departments routinely meet or exceed their goal to award 23 percent of their contract dollars to U.S. small business. In turn, the U.S. government requires that bids from contractors and major subcontractors include plans to subcontract work to U.S. small business. Canada is also concerned that the use of such subcontracting plans impedes Canadian access to the U.S. market. We will continue to press the Administration on this matter.

Buy American

Buy American provisions are applied extensively to U.S. federal government procurement that is not covered by the NAFTA or the WTO. Since these trade agreements only require equal treatment of Canadian offers on direct purchases by the U.S. federal government included in the agreement, a wide range of other federal government procurement contains Buy American provisions.

Department of Defence Procurement

Under the Canada-U.S. Defence Production Arrangement and the Defence Development Sharing Arrangement, Canadian industry has access to this huge market for equipment and R&D. This relationship requires continuous vigilance and maintenance to prevent erosion, whether intentional or inadvertent.

Buy American Provisions in Federally-Funded Sub-Federal Procurement

Buy American provisions are attached by the U.S. federal government to federally-funded sub-federal procurement, i.e. by making such provisions a condition of funding to state and municipal organizations. Canada continues to seek improvements to the limited access available to this important U.S. procurement market, which includes transit, highway and aviation projects.

Almost all large transportation contracts in the United States are federally funded but administered by state and local government or private-sector organizations. The Transportation Equity Act for the 21st Century (known popularly as TEA-21) provides funding for these projects through fiscal year 2003. The Federal Transit Administration and Federal Highway Administration (FHWA) grant TEA-21 funds to state and local governments and transportation authorities for transportation projects on the condition that U.S. material and equipment is used. Projects funded by the Federal Transit Administration require all steel and manufactured products to be 100 percent U.S. content and 100 percent U.S. manufactured. Rolling stock (trains, buses, ferries, trolley cars, etc.) components must be 60 percent U.S. content, with final assembly occurring in the United States. Projects funded by the FHWA require all iron and steel products and their coatings to be 100 percent U.S. manufactured.

Similar conditions prevail for airport projects that receive funds from the Federal Aviation Administration as authorized by the Airport and Airways Facilities Improvement Act. Such projects require that all steel and manufactured products be of 60 percent U.S. content and that final assembly occur in the United States. Canada will continue to press for improved access to procurement markets in these areas.

State and Local Government Preferences

A wide variety of procurement preferences exist at the state and local level. In addition, many U.S. federal government Buy American provisions are included in state and local procurement when federal funding is provided. Canada remains concerned that access for Canadian suppliers is constrained and unpredictable as a result of these preferences.

Legislative and Regulatory Changes

Although the United States has largely completed implementing changes made to its acquisition procedures arising from legislation passed in 1994 and 1995, regulations in civilian and defence procurement, which can effect market access for Canadian suppliers, change constantly. Canada continues to press the United States to clarify and resolve potential inconsistencies between its NAFTA obligations and the new procedures, which appear to limit Canadian participation. These include subcontracting requirements and simplified acquisition procedures for all procurement under $100,000 and for commercial items to a value of US$5 million. Canada is also concerned about the propensity for U.S. legislators to incorporate restrictive procurement provisions into unrelated legislation, such as appropriations acts, on an ad-hoc basis. Often relating to specific products, such action appears to be taken without full consideration of the potential for inconsistency with international trade obligations.

Standards-Related Measures

Canada continues to engage in a constructive dialogue with the United States, principally in the NAFTA Committee for Standards-related Measures, to urge that national regulatory burdens on industry be minimized while allowing industry to self-regulate in the context of an increasingly integrated North American market.

The four NAFTA sectoral subcommittees -- automotive, land transportation, telecommunications and textile labelling -- also provide excellent fora for bilateral cooperation in the area of standards and regulations. The land transportation and textile labelling subcommittees are pursuing a work program intended to harmonize standards and facilitate trade; they have achieved substantial progress in the area of driver/vehicle compliance for trucks and the care labelling of textile goods, respectively. In the telecommunications and automotive sectors, where standards measures have been generally complementary, the subcommittees are pursuing further bilateral cooperation, along with increased coordination of activities in international fora.

Canada is keeping a watch on the increasing trend in protectionist activity in the United States. Canada is seeking more complete implementation by the United States of its NAFTA and WTO sub-federal commitments, with a view to the upgrading or modernization of U.S. sub-federal standards measures, complementing the volume and variety of our trade in manufactured goods. Canada is also working to enhance bilateral dialogue at the provincial and state level in order to increase cooperative activities in the area of standards and regulations development in the areas of pressure vessels, building products and the harmonization of regulated standards for electrical safety.

Finally, Canada will continue to encourage cooperation with the United States in the development and use of voluntary consensus standards for the North American market as a substitute for national regulatory requirements. These standards initiatives will be joined by moves designed to provide appropriate conformity-assessment services.

Mexico

Overview

Canada-Mexico relations have expanded significantly over the past decade, particularly since the coming into force of the NAFTA. Mexico is now Canada's most important trading partner in Latin America. By 1999, Canada had become Mexico's fourth-largest trading partner and ranked fourth among foreign direct investors into Mexico.

Since NAFTA implementation in 1994 to the end of 1999, two-way merchandise trade has doubled, reaching over $13 billion. The growth rate since 1994 has been over 100 percent, both for exports and for imports. Nonetheless, Canada's historical trade deficit with Mexico has persisted, and by the end of 1999 was approaching $5 billion. (These data are based on respective import figures for Canada and Mexico published by Statistics Canada and the Mexican statistical agency, INEGI. Using these figures provides a more accurate picture of the volume of bilateral trade than does relying solely on each country's import/export data, which does not take into account a large portion of goods trans-shipped through the United States. The statistical agencies of Canada, the United States and Mexico are working to reconcile the data).

The majority of Canadian exports to Mexico are diverse manufactured products. Major export categories include automotive products, computers and parts, machinery and telecommunications equipment, as well as oil seeds, cereals and dairy products. Major Canadian imports from Mexico include automotive products, machinery, furniture, oil, optical products, fruits and vegetables.

Canadian business activity in Mexico has continued to grow as industrial sectors develop and the overall market evolves. Canadian companies are major foreign direct investors, ranking below the United States and the Netherlands, but are virtually even with Germany. Manufacturing, financial services and mining account for over 90 percent of Canadian investment. In trade, DFAIT officials have sustained a concentrated market-development program targeting identified priority sectors (industrial machinery, information technology, agriculture/agri-food, automotive, oil and gas, electrical power and transportation equipment and services), as well as emerging sectors (environmental, cultural and educational products and services).

The Mexican economy underwent a significant transformation during the 1990s, including considerable market liberalization and structural reform. By the end of the decade, Mexico had demonstrated a greater ability to withstand successive external shocks and domestic challenges. This, in turn, strengthened Mexico's credibility and investor confidence, allowing Mexico to differentiate itself increasingly from other emerging markets. This was reinforced by the Government's insistence on maintaining sound monetary and economic policies, particularly toward the end of President Zedillo's six-year term in office, a period traditionally plagued by economic crises. In addition to prudent domestic policies, Mexico restructured debt and otherwise took steps to avoid capital flight and a balance-of-payments crisis. With a Central Bank strategy geared toward "sustained stabilization" and a government focus on productivity, efficiency and competitiveness, the economy performed better in 1999 than most private analysts had expected. For 2000, official targets include GDP growth of 4.5 percent and inflation at 10 percent. Certainly Mexico benefited from its membership in the NAFTA and a strong U.S. economy, as well as its remarkably strong export sector. By the end of 1999, Mexico's exports were approaching those of the rest of Latin America combined. For 2000, a further increase of 11 percent is forecast. Imports have been growing steadily as well, finishing up more than 11 percent in 1999 over the previous year, with a similar increase forecast for 2000.

Market Access Results in 1999

• Canada and Mexico signed a satellite services agreement to facilitate the provision of services via commercial satellites licensed by the two countries.

• Canada and Mexico signed a Memorandum of Understanding (MOU) on the acceptance of test data to ensure that telecommunications and IT products meet all necessary safety standards.

• New opportunities for air services between the two countries were created as a result of an agreement on code-sharing that has been effectively implemented.

• A MOU on Cooperation in Food Safety and Inspection and Animal and Plant Health was signed in September 1999 to identify and resolve issues related to bilateral trade in agriculture and food products.

• The Fruit and Vegetable Dispute Resolution Corporation was incorporated in November 1999. This voluntary, industry-based, tri-national dispute settlement mechanism focuses on private commercial disputes involving trade in fruits and vegetables within and among the NAFTA countries.

Canada's Market Access Priorities for 2000

• continue to press Mexico to honour its NAFTA trucking obligations;

• make further progress on the harmonization and simplification of customs procedures and pursue facilitation of cross-border movement of goods (agri-food, textiles, etc.);

• continue discussions to ensure smooth operation and improvements on the agreement on seed potatoes;

• continue discussions for a smooth implementation of market access commitments for dry beans and for greater access on frozen french fries and mozzarella cheese;

• complete negotiations on fixed and mobile satellite services protocols to the 1999 Canada-Mexico Agreement on Satellite Services;

• continue to monitor closely Mexico's implementation of its WTO commitments under the WTO Agreement on Basic Telecommunications;

• continue ongoing initiatives to reconcile trade data; and

• continue to urge Mexico to finalize its list of services excluded from the NAFTA government procurement chapter and to resolve issues related to implementation of the chapter.

Canadian access to the Mexican market continues to improve and consolidate under the terms of the NAFTA. Prior to the NAFTA, more than 80 percent of Mexican exports to Canada entered duty-free, while most Canadian exports to Mexico faced Most Favoured Nation (MFN) tariff rates of between 10 percent and 20 percent. Also, Canadian firms have been able to expand sales in sectors that were previously highly restricted, such as the automotive, financial services and energy sectors. The elimination of Mexican import licensing requirements and the phasing out of almost all tariffs is helping to provide barrier-free access to a market of over 90 million people. Canada will continue to address bilateral trade irritants in the various NAFTA working groups and committees to ensure access for Canadian exporters, service providers and investors.

Improving Access for Trade in Goods

Accelerated Tariff Elimination

Most tariffs between Canada and Mexico are already free, and virtually all remaining tariffs will be eliminated by 2003. The NAFTA provides for the accelerated elimination of tariffs where countries agree. In this industry-driven process, tariffs are eliminated based on the support of the relevant sectors in both countries. Two rounds of accelerated tariff elimination, covering approximately $25 million in Canada-Mexico bilateral trade, have resulted in the removal of tariffs on a number of consumer products and manufacturing inputs. Canada will continue to review requests for accelerated tariff elimination in response to private-sector interests to improve Canadian access to the Mexican market.

Agricultural Products

Seed Potatoes

In October 1998, the CFIA and Mexican officials concluded an agreement that enables Canadian seed potato exports to Mexico and provides for eventual sales of Mexican minitubers to Canada. The agreement also has provisions for the development of access for Mexican table potatoes to Canada. The agreement has functioned well since its implementation.

Dry Beans

Access for dry beans in the Mexican market is limited by TRQs. Preferential TRQs are provided for Canada and the United States under the NAFTA, while a MFN TRQ is also provided under the WTO to all Members. On several occasions, including in 1999, Mexico has delayed the process by which certificates that enable importers of beans to access the lower in-quota rates of duty are issued. The matter of the delays was formally raised during the NAFTA Committee on Agricultural Trade meeting in March 1999, and discussions are ongoing to ensure the smooth implementation of Mexico's market access commitments.

Frozen French Fries

Under the NAFTA, Mexico established a TRQ on french fries with an over-quota tariff of 20 percent. This tariff is due to be eliminated in 2003. Demand for frozen potato products in Mexico, especially from food service chains, has been growing rapidly and has been supplied by imports. However, market access for frozen french fries has been limited by the small size of the TRQ, while the 20 percent over-quota tariff imposes unnecessary costs to the importers and consumers. Canada has raised this issue with Mexico on several occasions and will continue bilateral discussions aimed at obtaining better market access for this product.

Apples

According to Mexican law, the importation of apples is subject to importer registration. However, the Mexican Ministry of Finance (Hacienda) has refused to issue the necessary permits for the importation of fresh Canadian apples. While no "official" reason has been given, it appears that the refusal to issue the permit is connected to the fact that Canadian apples are priced lower than a reference price that is supposed to apply only to U.S. apples. Due to the perishable nature of the goods, Canada is intent on reaching a quick resolution. Discussions with Mexico are ongoing in an effort to clarify the application of this system and to ensure the issuance of permits and Mexico's compliance with existing market access obligations for apples.

MOU-Cooperation in Food Safety and Inspection and Animal and Plant Health

On September 29, 1999, Agriculture and Agri-Food Minister Vanclief and his Mexican counterpart Secretary Arroyo Marroquin signed an MOU -- which was further signed by Health Minister Allan Rock -- with the objective of identifying and resolving issues related to food safety and inspection and animal and plant health issues as they pertain to bilateral trade in agriculture and food products. The MOU will further the cooperation between regulatory officials in order to facilitate the trade of safe agriculture and food products through the use of science-based requirements.

The Fruit and Vegetable Dispute Resolution Corporation

The (NAFTA) Fruit and Vegetable Dispute Resolution Corporation (DRC) was incorporated in November 1999 and began operations on February 1, 2000 as a result of the work of the NAFTA Advisory Committee on Private Commercial Disputes regarding agricultural goods. It was created to provide a voluntary, industry-driven, tri-national private commercial dispute resolution mechanism for trade in fruits and vegetables. A Canadian, Stephen Whitney, was chosen as the first President and CEO of the corporation, which has its head office in Ottawa. The DRC holds significant potential to facilitate increased trade flows and improve the trading environment among the NAFTA countries in the fresh fruit and vegetable sector. More information can be obtained from the DRC website: http://www.fvdrc.com/

Improving Access for Trade In Services

Trucking

Mexico's NAFTA commitments on trucking services and investment were to have come into effect in December 1995. However, Mexico has delayed implementation in response to the fact that the United States did not liberalize its trucking measures because of various concerns, including Mexican truck safety standards. Although this is primarily a Mexico-U.S. dispute, an indirect result is that at least one Canadian trucking company has been prevented from operating in Mexico. The Canadian government continues to press Mexico to fulfill its NAFTA trucking obligations to Canada. Canada is participating as an interested third party in the NAFTA Chapter 20 panel in the Mexico-United States dispute.

More generally, substantial progress has been made in harmonizing technical standards for motor carriers under NAFTA Chapter 9. Canadian transport officials will continue this work with their U.S. and Mexican counterparts in anticipation of the eventual opening of the U.S.-Mexico border to trucking services.

Telecommunications

A number of Canadian telecommunications companies are doing business in Mexico. With the conclusion of the ABT, access for the supply of services to Mexico has increased, offering more opportunities to Canadian businesses. Canada will closely monitor Mexico's implementation of its WTO commitments. In addition, Canada will continue to press Mexico to put in place terminal attachment standards that conform to the NAFTA requirements, and to implement conformity-assessment procedures that would allow the acceptance of Canadian test data, as required under Articles 908 and 1304 of the NAFTA. Mexico has made encouraging commitments on both these fronts within the NAFTA Telecommunications Standards Subcommittee.

On April 9, 1999, Canada and Mexico signed an agreement on the provision of satellite services intended to facilitate the provision of services to, from and within Canada and Mexico via commercial satellites licensed by both countries. The agreement is to enter into force once the appropriate implementation measures are concluded in Canada and Mexico. The agreement provides for the negotiation of protocols to the agreement on the provision of both mobile satellite and fixed satellite services. The implementation of the underlying agreement and the negotiation of protocols on fixed and mobile satellite services will remain a priority for Canada in the year ahead.

Both countries have facilitated rapid growth in this industry by sharing innovative technologies and by collaborating in the development of telecommunications policy and regulations. Cooperation in this dynamic and increasingly important area will continue.

Financial Services

Canada is following legislative developments relating to a financial reform package that could have a significant impact on foreign investors' access to the Mexican financial market. Two areas in which Canada is seeking further change relate to access to the Mexican securities sector and the cross-border provision of insurance services.

In the securities sector, while Mexico has no current plans to allow limited-scope securities firms, this may be considered in the medium term. Canada will continue to encourage Mexico to establish new categories of securities firms and, in the context of a new Mexican pension regime, to open its pension-fund market to foreign securities firms. On the insurance side, Canada continues to work towards facilitating the provision of seamless insurance transactions for motor carriers involved in cross-border trade between Canada, the United States and Mexico.

Government Procurement

The implementation of the NAFTA has brought improvements to the transparency and openness of the Mexican procurement process. There are, nonetheless, outstanding Mexican implementation issues, in addition to ongoing access concerns, which the Canadian government is addressing.

PEMEX and CFE Set-asides

Mexico negotiated set-asides from full NAFTA procurement coverage for the state oil (PEMEX) and electricity (CFE) firms for a transitional period (1994-2002). Canada will continue to monitor Mexico's application of these set-asides.

Bid Notification Periods

Chapter 10 obligates the NAFTA parties to publish procurement tenders in a transparent way, so that qualified suppliers from the NAFTA countries have sufficient time to submit bids. A study commissioned by the Canadian government in 1997, and further work this year, have raised concerns about Mexico's compliance with the notification obligations. Canada continues to press Mexico for a response to our concerns.

Investment

Canadian direct investment in Mexico has increased from $245 million in 1990 to $2.2 billion in 1998. This can be attributed in large measure to the NAFTA, which through its Chapter 11 investment provisions has provided enhanced security for Canadian investors.

Other than limitations or exclusions in certain clearly defined sectors (of particular importance to Canada is investment in upstream oil and gas activities), Mexico does not restrict foreign investment in its economy. In addition, the Mexican government's ambitious privatization and infrastructure upgrading program has created new opportunities for Canadian businesses in sectors such as electrical generation, transportation (airports, railways and ports) and natural gas transportation (pipelines) and distribution.

In September 1998, Mexico published an update to the Foreign Investment Regulations to simplify administrative procedures and provide greater juridical security, certainty and transparency.

Free Trade Area of the Americas

The Free Trade Area of the Americas (FTAA) negotiations represent an historic opportunity to unite the countries of this hemisphere in a comprehensive free trade area that will promote regional prosperity and generate enhanced commercial opportunities for all of our economies.

The decision to create an FTAA was made by leaders of the 34 democratic countries of the hemisphere when they met in Miami for the first Summit of the Americas in December 1994. In their Declaration of Principles, leaders resolved to conclude the FTAA negotiations no later than 2005 and to make concrete progress toward achieving that goal by the end of the century. With the conclusion of Canada's chairmanship of the negotiations at the November 3-4, 1999 Ministerial Conference in Toronto, concrete progress has indeed been realized and the groundwork has been laid for the next phase of the negotiations.

In 1999, FTAA results were as follows:

• The Administrative Secretariat for the negotiations was established in Miami under the directorship of a Canadian.

• Progress was achieved on the work programs for the nine FTAA negotiating groups and three other bodies addressing the cross-cutting issues of e-commerce, civil society engagement and the participation of smaller economies.

• In Toronto, at a meeting of the 34 hemispheric trade ministers on November 3-4, 1999, ministers: reviewed the progress of the negotiations; adopted a substantive package of business-facilitation measures; agreed on a statement directed at the Seattle WTO Ministerial Conference on the elimination of agricultural export subsidies; instructed negotiators to develop a draft text of the FTAA Agreement by April 2001; and agreed on a renewed mandate for the FTAA Civil Society Committee.

A copy of the ministerial declaration can be found at http://www.sice.oas.org/ftaa/toronto/minis/minis_e.asp

In 2000, Canada will seek to:

• move the FTAA forward in all areas, with a focus on producing the draft text of the FTAA Agreement for the next ministerial meeting, to be held in Argentina in April 2001;

• ensure implementation by all countries of the customs facilitation measures agreed to by ministers in Toronto and encourage next steps toward agreement on a new package of measures; and

• pursue a collective process of consultation with civil society in the Americas.

The FTAA negotiations were officially launched by Prime Minister Chrétien and other hemispheric leaders in April 1998, based on the objectives, principles, structures, venues and other decisions set forth in the Joint Declaration issued by trade ministers in San José, Costa Rica, in March 1998. Key objectives and principles guiding the negotiations are that the FTAA will maximize market openness through a balanced and comprehensive agreement; that it will be consistent with the rules and disciplines of the WTO; and that countries are to accept the agreement as a single undertaking. Acceptance of the agreement as a single undertaking means that countries cannot "pick and choose" among the various chapters or provisions of the agreement but must accept it on an "all-or-nothing" basis.

Also at the San José meeting, trade ministers recognized the leadership role that the Canadian government played in launching the FTAA negotiations by selecting Canada to chair the negotiations until November 1999. In this capacity, Canada has chaired the Trade Negotiations Committee (TNC) of Chief Negotiators for the first 18-month period and hosted the Fifth Trade Ministers' Meeting in Toronto on November 3-4, 1999.

Under Canada's chairmanship, considerable progress has been achieved in several areas of the FTAA process, including the institutional infrastructure for the negotiations: work programs were developed for the nine negotiating groups, as well as for the bodies addressing the broader issues of e-commerce, smaller economies and civil society participation; the Administrative Secretariat was established in Miami; funding and support for the process were secured from the FTAA Tripartite Committee, which consists of the Organization of American States (OAS), the United Nations Economic Commission for Latin America and the Caribbean, and the Inter-American Development Bank; and draft rules and procedures for negotiations were developed.

The highlight of Canada's chairmanship was the ministerial meeting held in Toronto in November. Given the absence of U.S. fast-track negotiating authority, progress on business facilitation was an important element in achieving the concrete progress by 2000 mandated by hemispheric leaders and trade ministers. As part of an on-going process of business facilitation, ministers agreed in November to adopt eight measures to streamline and simplify customs procedures and ten measures to enhance the transparency of government rules and regulations affecting trade and investment. These measures will, once implemented, reduce red tape and other transaction costs of doing business in the hemisphere and, through websites, inventories, guides and other instruments, make information relevant to the conduct of business in the hemisphere more accessible to stakeholders. These measures can be accessed through the official FTAA home page at http://www.ftaa-alca.org/alca_e.asp

In Toronto, ministers also agreed on a strong collective message to send to trade ministers gathering less than a month later in Seattle for the WTO Ministerial Conference. The most significant element of this message from a Canadian standpoint was the agreement to work together in the WTO toward the elimination of agricultural export subsidies and the development of disciplines on other trade distorting practices, as well as toward the earliest compliance with all existing agricultural commitments under the Uruguay Round. Having such an unequivocal statement from the 34 FTAA participating countries puts added pressure on countries that subsidize agricultural exports and strengthens Canada's position on this issue at the WTO.

Ministers also took stock of the progress made during the first 18 months of the negotiations and issued clear directions for the next stage. Specifically, ministers directed the negotiating groups to produce the draft text of their respective chapters of an FTAA agreement in time for the next ministerial meeting in Argentina, expected in April 2001. The TNC has, in turn, been tasked with assembling the text from the negotiating groups and with working on the architecture of the agreement and on its general and institutional sections.

Finally, ministers received the FTAA Civil Society Committee's report in Toronto and agreed to give the committee a renewed mandate for the next 18 months to obtain ongoing input from civil society through written submissions. A report on the full range of views presented is to be provided to ministers in Argentina. While Canada will continue to champion a more ambitious mandate for the committee -- including direct interaction with civil society and perhaps exchanges on domestic consultative procedures -- the renewed mandate will allow the committee to continue to function and will allow further incremental progress to be made towards developing common ground in this sensitive area.

At the Toronto Ministerial Conference, ministers also agreed on a new roster of the countries that will serve as the chairs and vice-chairs for the next 18 months. The new roster is set out as an appendix to the ministerial declaration at http://www.sice.oas.org/ftaa/toronto/minis/minis_e.asp

In sum, our main objectives as Chair of the first phase of the FTAA negotiations have been met. The institutional framework needed to facilitate the progress of the negotiations has been established, substantive results were achieved in the form of a package of business facilitation measures to be implemented on January 1, 2000, and a clear sense of purpose and direction has been injected into the negotiations, with the negotiating groups tasked to develop draft texts by the next ministerial meeting in 2001. Although many challenges and much hard work lie ahead, Canada is confident that the stage has been successfully set for the next steps in the negotiations to achieve a hemispheric trade agreement by 2005.

Mercosur

Overview

Argentina, Brazil, Paraguay and Uruguay formed the Southern Cone Common Market (Mercosur) in 1991 under the Treaty of Asunción to provide the following by 2006: free circulation of capital, labour, goods and services; a common external tariff (CET); and harmonized macroeconomic and sectoral policies. With 240 million people (compared to 380 million in the NAFTA) this customs union is Canada's largest export market in Latin America. In 1999, two-way merchandise trade between Mercosur and Canada was valued at $2.82 billion, a decrease of 14.3 percent from 1998. All of the reduction came on the export side, with Canadian shipments to Mercosur dropping one-third in value to $1.07 billion. Imports from Mercosur increased a nominal 3.1 percent in 1999. Canada's main exports to Mercosur are paper products, potash, wheat, telecommunications equipment, aircraft parts, petroleum products, machinery, malt, minerals, plastics, rolling stock and pharmaceuticals. Investments are concentrated in the aluminium, oil and gas, mining, power, telecommunications and spirits sectors.

Partially harmonized CETs were implemented in 1995, and already about 90 percent of all internal trade is duty-free. The exceptions to the CET, such as hundreds of individual tariff lines for each country, are to be eliminated by 2006. Important areas such as sugar remain exempted. The Adjustment Regime, which set transitional rules for Mercosur trade, has expired (in December 1999 for Paraguay and Uruguay and in December 1998 for Brazil and Argentina). On services, the Mercosur trade ministers approved a framework in mid-December 1997, and detailed negotiations are ongoing. There has been no progress on the free movement of labour component in the Mercosur agreement.

Since its inception, Mercosur has negotiated and entered into free trade agreements with Chile and Bolivia. Mercosur has also reached a framework agreement with the EU and is looking at 2005 for full implementation.

Trade and Investment Cooperation Arrangement (TICA)

Signed in June 1998, the Canada-Mercosur Trade and Investment Cooperation Arrangement (TICA) laid the foundation for enhanced bilateral trade and investment and established a framework for collaboration in the FTAA, the WTO and the Cairns Group. The first Consultative Group meeting called for under the TICA took place during the FTAA conference in Toronto in November 1999. At that meeting, the Consultative Group agreed to form two committees: one to study customs and technical cooperation; and a second to study "best practices" in trade development and promotion. In addition, it was agreed that the Business Advisory Council will be inaugurated at the next Consultative Group meeting, scheduled for early summer 2000 in Uruguay. This council will provide the mechanism for business representatives to input directly into the Canada-Mercosur trade and investment relationship.

Canada will continue to encourage Mercosur member countries to adhere to the ITA. Mercosur represents a major export market for Canadian manufacturers of IT and communications equipment.

Argentina

Consistent economic policy since 1991 has brought Argentina a level of economic stability unprecedented in recent history. The enormously successful Convertibility Plan of 1991, which pegged the peso to the U.S. dollar, has resulted in high local and foreign investor confidence and broad public support. Because of its heavy reliance on Brazil's economy, and that nation's recent currency crisis, Argentina has experienced a recent downturn in its industrial production. However, prospects for Canadian exporters remain promising over the medium- and long-term, especially in the investment sector, where Argentina is one of the leading emerging markets for foreign investment opportunities.

Pork

On September 30, 1997, CFIA officials and their Argentine counterparts reached agreement on a pilot project allowing for the export of fresh, chilled and frozen pork to Argentina and Argentine exports of fresh, chilled and frozen beef to Canada. Technical requirements had previously prevented trade in these products. In 1999, both sides agreed to extend the terms of the pilot project indefinitely, pending further technical discussions towards a longer-term arrangement. These discussions will continue in 2000. As a result of the pilot project, Canadian pork exports to Argentina in 1998 were valued at $3.6 million.

Investment

Argentina is an important investment location for Canada. In 1998, Canadian direct investment in Argentina totalled $2.2 billion, up from $1.9 billion in 1997. The main focus of this investment has been the oil and gas, mining and energy, agro-industry, banking and telecommunications sectors. Forestry may soon offer potential for further Canadian investment. Investors are free to enter Argentina through mergers, acquisitions, greenfield investments or joint ventures. While foreign firms may also participate in publicly financed R&D programs on a national treatment basis, Argentina reserves the right to maintain exceptions to national treatment for real estate in border areas, air transportation, shipbuilding, nuclear energy, uranium mining and fishing. Technical discussions on upgrading the existing FIPA between Canada and Argentina were last held in January 1998. Canada has been pressing to improve the existing agreement to provide additional stability and transparency to an already positive bilateral investment relationship. The Fiscal Convertibility Law, adopted by the Argentine Congress in October 1999, is another measure that the Government has introduced to encourage foreign investment in Argentina.

Brazil

In January 1999, the Brazilian government allowed the exchange rate for the real to float on global currency markets. This move, part of an effort to adjust federal fiscal and monetary policies, led to increased volatility in the real's exchange rate to the U.S. and Canadian dollars. Canadian exports to Brazil decreased by 35 percent in 1999 due in large part to the currency shift. The value of the real is stabilizing, however, and as internal prices adjust to its new value and the Brazilian economy begins to expand, Canadian exporters should again see export amounts rise to previous levels. The medium- and long-term prospects for Canadian exporters continue to be strong.

PROEX

PROEX, a Brazilian export subsidy, reduces financing costs for Brazilian exports under its "interest equalization" component. Canada has been particularly concerned about its application in the aircraft sector, where it may have cost Canadian firms up to $1.5 billion in lost annual sales. In 1998, after unsuccessfully attempting to resolve the matter bilaterally, Canada sought a WTO dispute settlement panel to examine the matter. The panel ruled that PROEX was a prohibited export subsidy as applied to regional aircraft (confirmed on appeal) and instructed Brazil to remove the subsidy by November 1999. As a result of concerns that Brazil did not comply fully with the panel ruling, Canada has requested a compliance panel to formally assess Brazilian implementation.

In a related WTO panel, it was determined that Technology Partnerships Canada and EDC's Canada Account were also prohibited export subsidies, as applied to regional aircraft. Although Canada acted to bring these programs fully into compliance with its WTO obligations, Brazil has challenged Canada's implementation of the panel ruling. Canada is confident that a panel will confirm its compliance. The WTO is examining the two challenges under separate panels. At press time, the decisions of both panels were expected in mid-March or early April. For the latest update, visit dispute-en.asp

Both sides are also working bilaterally to arrive at a mutually satisfactory settlement that should include significant changes to the PROEX subsidy regime applied to regional aircraft. It is clear, however, that if agreement is not reached and this dispute proceeds to the retaliation stage, the cost to Canada-Brazil trade and investment relations would be very high.

Customs Valuation

On February 13, 1998, Brazil published Decree #2.498/98, implementing the Customs Valuation Agreement of the WTO. The agreement was further regulated by the adoption of two normative instructions (16/98 and 17/98) issued by the Brazilian Revenue Department, which establish that all goods are subject to verification and that the process is a selective one. The verification process takes into consideration the declared price of the merchandise, the integrity of the documents presented, information on freight costs, costs relative to loading and unloading of the merchandise and costs relative to freight insurance. In addition, Brazilian authorities may request further documentation from the importer to confirm the declared price of the merchandise. Canada will closely monitor how Brazil applies its customs valuation regime on Canadian exports to insure that it is applied in ways that are consistent with Brazil's international trade obligations.

Meat Certificate Validation Requirements

Canadian exporters remain concerned over the fact that the Brazilian consulates must validate inspection certificates for meat products prior to export (so-called consularization requirement). This creates additional delays and costs for Canadians in advance of shipping. Canada does not impose such a requirement on imports from Brazil or any other country. Canada believes that this requirement is contrary to common international practice and that it constitutes an unnecessary barrier to trade, so has made numerous representations requesting its removal. Brazilian authorities informed our Embassy in early 1999 that a change in legislation that will remove this requirement was expected in the coming months. Although Brazilian senior government officials have given repeated assurances since then, the requirement remains. Given the commitments of Brazilian government officials, Canada will continue to press the Brazilian government to confirm officially that the validation requirement for Canada has been removed.

Mutual Recognition of Poultry Inspection Systems

Canadian exporters have expressed an interest in exporting processed food containing chicken to Brazil. Brazil currently does not allow the importation of most Canadian poultry meat on the grounds that Brazil has not yet reviewed and recognized Canada's meat inspection system for poultry or approved Canadian establishments (Brazil does currently accept ratite meat and duck meat from Canada). CFIA officials and their Brazilian counterparts are now working on a mutual review of the poultry meat inspection systems. At the first meeting of technical officials in August 1998, Brazil and Canada agreed upon the approach for the review. Bilateral discussions have been ongoing since then. Both countries have completed their information-gathering exercise (Canada in September 1999 and Brazil in December 1999). The next step is for the two sides to review the information, exchange reports and reach agreement on the applicable trade conditions for poultry meat. Completion of the process would allow exports of Canadian poultry (i.e. chicken and turkey) into Brazil and Brazilian poultry into Canada. CFIA officials are working toward finalizing an agreement in 2000.

Memorandum of Understanding on Agricultural Cooperation

The Canada-Brazil MOU on Agricultural Cooperation was signed in January 1998. Agriculture ministers agreed in September 1998 that the two countries should bring the MOU into full implementation through the promotion of trade expansion in 12 major agri-food commodity areas. The Canada-Brazil Working Group on Agricultural Cooperation facilitates the exchange of information and bilateral consultation and seeks to contribute to the expansion of agricultural relations between the two countries. Both countries have exchanged lists of their import requirements and trade statistics for the products they consider priorities, and will endeavour to eliminate, where possible, potential barriers or other restrictions to enhanced bilateral trade.

Exchanges between industry associations, as specified in the agreement, have also taken place, such as meetings between the Brazilian Chicken Producers and Exporters Association (ABEF) and the Further Poultry Processors Association of Canada (FPPAC). Brazil's former Agriculture Minister, Francisco Turra, took a mission of senior Brazilian government officials and Brazilian agri-business representatives on a cross-Canada tour in June of 1999. Canadian Agriculture and Agri-Food Minister Vanclief reciprocated with a visit to meet Brazil's newly-appointed Agriculture Minister, Marcus Vinicius Pratini de Moraes, in August of 1999. The two ministers have also met frequently in international fora to advance bilateral trade interests and to discuss strategies to be adopted by the Cairns Group of countries. There was also the meeting of the Joint Agriculture Committee (JAC) of the Canada-Brazil Joint Economic and Trade Council (JETC) in early 1999, during which many of the aforementioned issues were discussed.

Brazilian Tariff on Wheat

In 1996, Brazil notified WTO Members that it had withdrawn, from its WTO schedule, a market access concession of 750,000 tonnes of duty free importation of wheat and would apply a duty, currently set at 13 percent, to importations of wheat. As Canada is a major supplier of wheat to Brazil, we exercised our right to request compensation for the non-implementation to this concession and the raised tariff. Since then, Canada and Brazil have held a series of consultations, but have not yet agreed on a settlement.

Telecommunications Services

Brazil is in the process of implementing its GATS commitments with respect to telecommunications services. As a result, several prominent Canadian telecommunications services companies are active in Brazil, as well as a number of Canadian manufacturers. Brazil has launched a consultation process and is expected to announce the rules for licensing satellite telecommunications providers during 2000. The Government will observe this process with great interest and will continue to monitor Brazilian implementation of its commitments under the GATS.

Investment

In 1998, Canadian FDI in Brazil was approximately $2.8 billion. Due to the significant levels and long history of Canadian investment in Brazil, it is regarded as one of Canada's highest-priority countries for concluding a FIPA. Negotiations were initiated in June 1998 and are ongoing.

Chile

Overview

The Canada-Chile Free Trade Agreement (CCFTA) and its two parallel agreements on environmental and labour cooperation are now nearly three years old. On July 5, 1997, under the CCFTA, tariffs were eliminated on the majority of products that make up Canada-Chile bilateral trade. For products on which tariffs are being gradually eliminated, the fourth round of cuts was made on January 1, 2000. As a result of a November 4, 1999 agreement, Canada and Chile have accelerated the elimination of tariffs on a selection of products. Tariffs on most other industrial and resource-based goods will be phased out by 2003.

The implementation of the CCFTA has precipitated a new era of bilateral cooperation with Chile. The total value of two-way trade in goods reached $768 million in 1999. Canada's exports of goods totalled $347 million and imports reached $421 million in 1999. Canada has become the second-largest foreign investor in Chile, with current and planned investments approaching $11 billion. In the past two years, over 70 percent of Canadian investment has been in the mining sector, resulting in spin-offs for Canadian companies in other manufacturing and services sectors. Significant Canadian investments were also directed to the energy and IT sectors. While it is yet too early to assess the impact of the CCFTA on the bilateral trade and on investment, clearly the short term trends have been very encouraging.

The entry into force on January 1, 2000 of the Convention on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (DTA), the first of Chile's new generation of tax treaties, meets one of the key commitments contained in the CCFTA. This convention will facilitate the growth in trade and investment between Canada and Chile by establishing a more stable taxation framework for individuals and companies doing business in each other's country.

Eight committees and working groups are in place to carry out any outstanding implementation elements of the CCFTA and to resolve problems before they escalate into formal disputes. For example, through the Committee on Trade in Goods and Rules of Origin, Canada and Chile agreed to accelerate the elimination of tariffs on turkey poults and hatching eggs, feed peas, fresh or chilled tomatoes, peaches, plums, sloes, certain colour pigments, certain articles of plastic and a number of textile products. Progress has also been made in fulfilling CCFTA obligations in such areas as agreeing to model rules of procedure for settlement of disputes, the publication of documentation on temporary-entry procedures and establishing mutually compatible procedures for recognition of test reports in the telecommunications sector. Chile has also demonstrated its willingness to facilitate trade by agreeing to lower its visa-processing fees from US$650 to US$100.

In 1998, the Chilean government announced that it will reduce its uniform MFN tariff by 1 percentage point per year until the tariff reaches 6 percent on January 2003. Under this schedule, the non-preferential MFN rate for all goods entering Chile is 9 percent in 2000. In two cases, bread mixes and cereal preparations, these MFN reductions will trigger guaranteed minimum margins of preference for Canadian goods in the years 2001, 2002 and 2003. In these two cases, Canada will seek to ensure that Chile honours its CCFTA obligations by adjusting downwards the special rate for Canada.

In September 1998, the Chilean Central Bank announced what it described as a temporary elimination of the encaje, a mechanism requiring foreign investors to keep up to 40 percent of their investment on deposit at the Central Bank. To date, this measure has not been re-instated. For the time being, Canadian companies will find their investment in Chile to be less costly.

Market Access Results in 1999

• On January 1, 2000, the Convention on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (DTA) came into effect.

• On January 1, 2000, an agreement to accelerate the elimination of tariffs on a selection of products came into effect.

• In May 1999, two MOUs between the CFIA and Chilean Agriculture and Livestock Service on cooperation and the exportation of Canadian pork to Chile were signed.

• Chile lowered its visa processing fee from US$650 to US$100.

• Chile continued to suspend the encaje.

Canada's Market Access Priorities for 2000

• encourage Canadian and Chilean professional services providers, particularly engineers, to continue work on developing mutually acceptable standards and criteria for licensing and certification of professionals;

• implement the WTO panel ruling regarding a liquor tax; and

• complete the roster of panelists for dispute settlement purposes.

Safeguards

In October 1999, Chile announced safeguard measures on imported products covered by its price band system (i.e. wheat, wheat flour, edible vegetable oils and sugar). Of these products, Canada has an export interest in wheat. Representations are being made to Chilean authorities to have the CCFTA Chapter F-02 exclusion applied to Canadian imports.

Taxes on Alcoholic Beverages

The European Union, United States, Canada and Peru participated in WTO dispute settlement proceedings, contending that Chile maintains a tax regime that discriminates against imported alcoholic beverages. A WTO panel ruled that the different taxation system on imports afforded protection to Chile's domestic production, and the WTO asked Chile to bring its taxes into conformity with its trade obligations. Chile appealed the ruling, but the panel's findings were upheld by the December 13, 1999 ruling of the Appellate Body. Chile was given 15 months to bring its taxation regime into conformity with the rulings.

Gold Coins

The Chilean Internal Revenue Service (IRS) applies a 50 percent luxury tax and 18 percent VAT to imported gold coins produced by the Royal Canadian Mint, while similar gold coins produced by the Chilean Mint are not taxed. Canada has made representations to the Chilean government seeking an end to the discrimination. In order to resolve the problem, either the IRS will have to change its interpretation of the relevant law or the Chilean Central Bank will need to amend the law. Canada is currently assessing options in consultation with the Royal Canadian Mint, including recourse to formal dispute resolution under either the CCFTA or the WTO.

Costa Rica

Over the past few years, on several occasions, Costa Rica has expressed interest in pursuing an ambitious FTA with Canada. In July, 1999, the Costa Rican Vice-Minister for International Trade submitted a written proposal to DFAIT proposing such negotiations, with the Canada-Chile Free Trade Agreement to be used as the textual basis for the discussions. Costa Rica's Trade Minister reiterated his country's interest in pursuing a bilateral FTA with Canada during a meeting with Minister Pettigrew held on the margins of the FTAA Ministerial in Toronto in November 1999. During the visit of Costa Rican President Rodriguez to Ottawa January 31-February 2, 2000, it was agreed that both sides would consult domestically and explore the possible scope of negotiations prior to making recommendations about launching such an initiative.

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